Tax Expenditure Appendix A

The following tax expenditures have been revised or created
due to recent law changes:

The Personal Income Tax:

Circuit Breaker Tax Credit Increased (see item 1.609): A
credit is allowed to an owner or tenant of residential property located in
Massachusetts equal to the amount by which the real estate tax payment or 25%
of the rent constituting real estate tax payment exceeds 10% of the taxpayer’s
total income. For tax year 2011, the credit is capped at $980. The amount of
the credit is subject to limitations based on the taxpayer’s total income and
the assessed value of the real estate, which must not exceed $729,000. For tax
year 2011, an eligible taxpayer’s total income cannot exceed $52,000 in the
case of a single filer who is not a head of household filer, $65,000 for a head
of household filer, and $78,000 for joint filers. In order to qualify for the
credit, a taxpayer must be age 65 or older and must occupy the property as his
or her principal residence. See TIR 11-11 for more information.

Conservation Land Tax Credit (see item 1.615): Effective
for tax years beginning on or after January 1, 2011, a credit is allowed for
qualified donations of certified land to a public or private conservation
agency. The credit is equal to 50% of the fair market value of the qualified
donation. The amount of the credit that may be claimed by a taxpayer for each
qualified donation cannot exceed $50,000. The credit is refundable but not
transferable. The certification process is conducted by the Executive Office of
Energy and Environmental Affairs (EEA). EEA has promulgated a regulation, 301
CMR 14.00, entitled Conservation Land Tax Credit, which sets forth criteria for
authorizing and certifying the credit. See also, 830 CMR 62.6.4, entitled
Conservation Land Tax Credit, promulgated by DOR to explain the calculation of
the allowable credit.

Current Federal Code Provisions Allowed by Massachusetts:

As a general rule, Massachusetts will not adopt any federal
tax law changes incorporated into the Internal Revenue Code (“Code”) after
January 1, 2005. However, certain specific provisions of the personal income
tax automatically adopt the current Code, and are reflected in these estimates.
Provisions of the Code adopted on a current Code basis are (i) Roth IRAs, (ii)
IRAs, (iii) the exclusion for gain on the sale of a principal residence, (iv)
trade or business expenses, (v) travel expenses, (vi) meals and entertainment
expenses, (vii) the maximum deferral amount of government employees’ deferred
compensation plans, (viii) deduction for health insurance costs of
self-employed, (ix) medical and dental expenses, (x) annuities, and (xi) health
savings accounts. See TIRs 98-8, 02-11, 07-4, and 09-21 for further details on
Massachusetts personal income tax current Code provisions.

Temporary Increase in Earned Income Credit (see item
1.605): The federal Economic Growth and Tax Relief Reconciliation Act of 2001
(P.L. 107-16) and subsequent legislation temporarily increased the beginning
and end points of the earned income tax credit (EITC), increased the credit for
three or more children and made other taxpayer beneficial changes, with changes
set to expire December 31, 2010. For federal income tax purposes, the Tax Relief
Act of 2010 extends the enhanced EITC for two years, through December 31, 2012.
The Massachusetts earned income tax credit equals 15% of the federal earned
income tax credit received by the taxpayer for the taxable year. Therefore,
Massachusetts allows 15% of the amount the taxpayer receives federally under
IRC sec. 32.

Temporary Increase in IRC Sec. 179 Expensing (see item
1.305): Effective for tax years beginning in 2010 and 2011, for federal income
tax purposes, the federal Small Business Jobs Act of 2010 (Public Law 111-240)
increased the IRC sec. 179 election to expense property in its initial year
from $250,000 to $500,000. The federal Act also increased the sec. 179 overall
investment phase-out threshold for the 2010 and 2011 tax years from $800,000 to
$2,000,000. Further, the Act allows up to $250,000 of specified “qualified real
property” to qualify for the expense election in 2010 and 2011. Massachusetts
adopts these changes because sec. 179 is a trade or business expense deduction;
these deductions are adopted by Massachusetts on a current Code basis.

Current Federal Deductions Not Allowed

Parking, Combined Commuter Highway Vehicle Transportation
and T-Pass Fringe Benefit — IRC sec. 132(f) (see item 1.030): The federal
exclusion amounts for tax year 2011 are $230 per month for qualified parking,
and $230 per month for combined commuter highway vehicle transportation and
transit passes. The Tax Relief Act of 2010 temporarily increased the exclusion
amount for combined commuter highway vehicle transportation and transit passes
to $230 per month through the tax year 2011. Massachusetts follows the January
1, 2005 Code and does not adopt the increased exclusion allowed by the Tax
Relief Act of 2010 for combined commuter highway vehicle transportation and
transit passes. The Massachusetts exclusion amounts for tax year 2011 are $230
per month for qualified parking, and $120 per month for combined commuter
highway vehicle transportation and transit passes. For further discussion, see
TIR 10-20.

Federal Deduction — Not Allowed Federal “Bonus” Depreciation
—IRC sec. 168(k): For federal income tax purposes, the Tax Relief Act of 2010
expands the additional first-year depreciation deduction (“bonus depreciation”)
under IRC sec. 168(k) to equal 100% of the cost of “qualified property;” the
property must be placed in service after September 8, 2010, and before January
1, 2012. Under 2002 legislation, Massachusetts decoupled from bonus
depreciation allowed under IRC sec. 168(k), as amended and in effect for the
current year. Therefore, Massachusetts does not adopt this additional
depreciation deduction. See TIRs 02-11 and 03-25 for further details.

Federal Deduction — Not Allowed Domestic Production Activity
Deduction —IRC sec. 199: For federal income tax purposes, a business entity
that pays wages to employees and conducts eligible domestic production
activities is allowed a deduction for domestic production activities under IRC
sec. 199. Generally, in the case of a non-corporate taxpayer, the deduction
allows a business with qualified production activities to deduct 9% of its U.S.
adjusted gross income. Under 2004 legislation, Massachusetts de-coupled from
the production activity deduction allowed under IRC sec. 199, as amended and in
effect for the current year. Therefore, Massachusetts does not adopt this
deduction. See TIR 05-5.

Federal Exclusion — Not Allowed Mortgage Forgiveness — IRC
sec. 108(a): The federal Mortgage Forgiveness Debt Relief Act of 2007 (P.L.
110-142) amended IRC sec. 108(a) by adding an exclusion for indebtedness that
is discharged before January 1, 2010 and is qualified principal residence
indebtedness. The Economic Stabilization Act of 2008 extended this exclusion
for three years, until January 1, 2013. Massachusetts does not adopt this
exclusion or the extension because they were enacted after January 1, 2005.

Corporate and Other Business Excise:

New Tax Incentive in the Life Science: Refundable Jobs
Credit

The Life Sciences Tax Incentive Program in G.L.c. 23I, section 5,
has a new tax incentive. A corporation may in certain circumstances be allowed
a refundable jobs credit against its tax liability under G.L.c. 63. The credit
must be authorized by the Life Sciences Tax Incentive Program; this is not a
credit a taxpayer can claim without prior approval. Among the conditions for
claiming this credit is the taxpayer’s commitment to create a minimum of 50 net
new permanent full-time positions in Massachusetts. See TIR 11-06.

Conservation Land Credit (New)

Effective for tax years beginning on or after January 1,
2011, a credit is allowed for qualified donations of certified land to a public
or private conservation agency. The credit is equal to 50% of the fair market
value of the qualified donation. The amount of the credit that may be claimed
by a taxpayer for each qualified donation cannot exceed $50,000. The credit is
refundable but not transferable. The certification process is conducted by the
Executive Office of Energy and Environmental Affairs (EEA). EEA has promulgated
a regulation, 301 CMR 14.00, entitled Conservation Land Tax Credit, which sets
forth criteria for authorizing and certifying the credit. See also, 830 CMR
62.6.4, entitled Conservation Land Tax Credit, promulgated by DOR to explain
the calculation of the allowable credit.

Some administrative Changes

There are administrative changes that will affect
corporations, relating to interest charges after audit, at G.L. c. 62C, section
32(f), and to overpayments of tax, applications for abatement and refunds, at
G.L. c. 62C, sections 36 and 37. See FY 2012 budget, St. 2011, c. 68, and TIR 11-06.

Updated corporate excise tax rate reduction schedule: The
following tables have been created by referring to G.L. Ch. 63 Sections 32 D
and 39, and Ch. 62 Section 4.